Diesel or compressed natural gas? A real options evaluation of the U.S. natural gas boom on fuel choice for trucking fleets. (October 2015)

• Record Type: Journal Article
• Authors: Xian, Hui; Karali, Berna; Colson, Gregory; Wetzstein, Michael E.
• Is Part Of: Energy. Volume 90:Part 2(2015)
• Page Start: 1342
• Page End: 1348
• Publication Date: 2015-10
• Subjects: Compressed natural gas -- Diesel -- Real options analysis -- Trucking fleet; Power resources -- Periodicals; Power (Mechanics) -- Periodicals; Energy consumption -- Periodicals; 333.7905
• DOI: 10.1016/j.energy.2015.06.080
• Languages: English
• ISSNs: 0360-5442

Abstract

Abstract: Prior to the current U.S. shale gas boom, compressed natural gas played only a minor role as a vehicle fleet fuel despite government policies supporting adoption. With new hydraulic-fracturing methods resulting in a natural gas supply surge, a structural shift has occurred in compressed natural gas price dynamics and its relation with diesel prices. This study analyzes the impact of this shift on the optimal fuel choice by return-to-base trucking fleets considering pre- and post-boom compressed natural gas and diesel price dynamics in a real options analysis framework. Optimal decision thresholds for differing size and vehicle miles traveled indicate that even in the absence of supportive government policies, compressed natural gas is a viable and profitable alternative to diesel under the new market conditions. Highlights: Optimal fuel choice for shipping fleets is evaluated using a real options analysis. Diesel was the optimal fuel choice before the 2009 U.S. shale gas boom. Compressed natural gas became a competitive fuel choice following the boom. The greatest competitive impact is for smaller and low mileage fleets.